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23 Nov 10 Trust distribution "special income" of super fund - Allen

The Federal Court (Collier J) has held that a distribution (the Distribution) received by the trustees of a superannuation fund (the Fund) from a fixed trust (the Fixed Trust), constituted “special income” in the hands of the Fund for the purposes of the former s 273(7) ITAA 1936, notwithstanding that the Fund held a fixed entitlement to 100% of the income of the Fixed Trust. This finding had the significant financial consequence of the income being taxed at the rate of 47% rather than 15%.

The source of the funds comprising the Distribution from the Fixed Trust was a distribution of a capital gain to the trustee of the Fixed Trust by the trustee of another trust of which the Fixed Trust was a discretionary beneficiary.

Specifically, the Court held that:

  • the term “income derived” in s 273(7) included amounts of ordinary and statutory income and was not restricted to ordinary income;
  • the trustee of the Fund“acquired” its fixed entitlement to the income of the Fixed Trust within the meaning of s 272(7)(a), notwithstanding that its entitlement arose as a result of a declaration of trust by the trustee of the Fixed Trust;
  • the Fund acquired its entitlement to income or derived the income under an “arrangement” as defined in s 272(8);
  • the parties to the arrangement not “dealing” with each other at arm’s length in relation to the arrangement, notwithstanding that the Fund was a passive recipient;
  • the amount of the income was greater than might have been expected to have been derived if the parties had been dealing with each other at arm’s length; and
  • the position maintained by the trustees was not "reasonably arguable" for the purposes of determining the appropriate penalty.

Allen (Trustee), in the matter of Allen's Asphalt Staff Superannuation Fund v FCT [2010] FCA 1276 (Federal Court, Collier J, 19 November 2010).

 


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